KEY POINTS:
SkyCity is blaming Hollywood and glorious summer weather for the radical $60 million writedown that has halved the value of its cinema assets.
The casino company said that under-performing Hollywood movies and smaller summer audiences - combined with the upcoming capital costs of upgrading the chain - led
it to reassess expectations for the country's biggest cinema chain.
It plans to incorporate the writedown into the half-year financial statements for the period ended December 31.
The summer holiday period was a critical part of its trading year and attendance was diminished due to the good weather, said acting chief executive Elmar Toime yesterday.
But to market observers the lower valuation appeared designed to attract potential bidders back to the bargaining table and help the company to dispose of the cinema assets.
Paul Glass of Brook Asset Management welcomed the revaluation as better recognising the value of the assets.
Others sources questioned Toime's defence of the previous valuation which was made long before his arrival by the board and previous chief executive Evan Davies.
The company opted to sell the cinema chain last year because it did not provide the return on the price it paid for the assets.
But critics have suggested it was always going to be difficult to make an adequate return on its investment because it paid too much.
In 2006 SkyCity owned 50 per cent of the company but then paid its partner Village Cinemas $50 million for the other half.
There had been further investment and Toime said yesterday that SkyCity had been valuing the cinemas - in broad terms - at around $120 million.
But Toime rejected a suggestion that SkyCity paid way over the odds.
"Clearly we thought it it was going to be better than it has been."
"We make assumptions about the film quality but I think that these have not met out expectations but our valuations were justified.
"I think it is an entire industry thing for New Zealand," he said.
But Andrew Cornwell, of the New Zealand Motion Picture Distributors Association, dismissed suggestions of a major downturn, saying that the box office of $151.7 million for 2007 was the third highest on record.
There were fewer big hits in November and good summer weather meant crowds were down about three per cent in December and January, "but there is certainly no crisis", he said.
The writedown in the midst of SkyCity's long-running negotiations on the sale of the cinema assets is understood to have followed moves by a prospective bidder - the Australian chain Greater Union - to walk away from talks.
It is understood that lower expectations on price will allow other bidders to re-enter.
A consortium of New Zealand bidders, believed to be headed by Berkeley Cinemas boss Barrie Everard, is believed to have walked away.
US-based Reading cinemas may also be interested, but Hoyts Cinemas pulled out early in the process.
It is understood this is because SkyCity Cinemas is dominant in the Auckland market and it would face competition issues.
Toime rejected a suggestion that the timing of the writedown was designed to avoid any surprises when the company announces its half-year results on February 25.
Industry sources said that the original purchase of the cinema chain was part of a bid by the company - under former chief executive Evan Davies - to turn it from a pure casino operator into a full entertainment company. Davies was concerned about the effects of the smoking ban and anti-gambling legislation.
"He hoped to give the company a better image," said one source.
BIDS DEAD IN THE WATER AFTER 2 MONTHS' PLAY
Bids for SkyCity Entertainment appear to be dead in the water, with the company still waiting for a firm offer more than two months after due diligence was conducted on the business.
The casino and hotel operator has been in play since September 21, when it opened its doors to potential bidders.
Two parties undertook due diligence in October and November and were given until the end of November to come back to the board with an offer.
But they failed to meet the deadline and on December 5 SkyCity said one of the parties was "highly optimistic of securing suitable financing in the very near term" and was looking to put forward a "compelling offer".
The party, which is understood to be a US private equity consortium made up of TPG Newbridge and Apollo Management LG, is thought to have stopped short of an offer because of the rising cost of finance.
In mid-January hopes of a bid coming in were raised again after TPG began pulling together the conclusion of its purchase of Harrahs casino in Las Vegas. But nearly one month on there is still no news.
Yesterday CEO Elmar Toime said there was no further development in the sale process. A source close to TPG said there was no prospect of an offer emerging soon.
SkyCity's shares fell 9c to a 4 1/2-year low of $4.09 yesterday on the back of the cinema news.
- additional reporting by Tamsyn Parker
